§ Annual allowances under Chapter II of Part X of the Income Tax Act 1952 in respect of capital expenditure incurred after 5th April 1965 on the provision of a ship shall be computed in accordance with Section 281 of the Income Tax Act 1952 as if, instead of requiring an annual allowance to be five-fourths of the percentage therein specified of the relevant capital amount, that section required it to be so much of that amount as is specified by the person to whom the allowance is to be made in making his claim for the allowance.—[Mr. Ian Lloyd.]
§ Brought up, and read the First time.
§ Mr. Ian Lloyd (Portsmouth, Langstone)I beg to move, That the Clause be read a Second time.
A professor of logic was recently much exercised by the problem of defining a dog. It was not solved for him until one of his brighter students had produced the definition that a dog was an animal which was recognised by other dogs. I could not help the Financial Secretary were he perturbed by the problem of defining the Finance Bill, because it certainly would not be recognised by—[Interruption.]
§ 10.30 p.m.
§ Mr. LloydIndeed, it would hardly recognise itself in a mirror, and if the mirror was the Finance Bill of 1865 it is of some interest that the whole of the business of that year's Finance Bill was discussed in 40 pages of HANSARD—even by the standards of that day somewhat considerable—and in one day.
But despite the repeated attempts which I and my hon. Friends have made to secure that the Bill as it stands recognises the special plight of the shipping industry, so far we have had only the vaguest assurances, and I submit that this does not amount to reassurance. This Clause is our last attempt in this context to test, first, the Government's sincerity; secondly, the Government's realism; and, thirdly, if I may put it to the Chief Secretary, the Government's ingenuity— 1890 sincerity because of the Government's repeated promises to industries such as the shipping industry and others similarly placed; realism because the shipping industry lives in a world of intense international competition which must receive recognition in this House; and ingenuity because the Government claim that ingenuity can solve the problems of anomalies.
Since shipping cannot exactly claim to be an infant industry, we cannot use the argument that the Government in this sense, over the problem of anomalies, is throwing out the baby with the bath water, although it can be argued that many enterprises within the shipping industry are infant enterprises. The proper analogy is that the Government are prepared to plough under the whole crop because some of the corn is likely to be attacked by weevils.
The purpose of this Clause is to bring the Bill into line with the provisions of Section 38 of the Finance Act, 1963. This allows firms in development districts to choose their own period of write-off. Section 38 encourages investment in development districts. This Clause would encourage development in ships. Perhaps it could be argued that whereas Section 38 of the 1963 Act depends primarily on a geographical definition of development, this Clause depends on an economic definition of development. Perhaps in the situation in which the United Kingdom finds itself, economic criteria are preferable to geographical or social criteria because if the economic criteria are satisfied we can possibly create the resources with which to satisfy our further ambitions.
The Committee may ask, why again for shipping? The general arguments in favour of this and other Amendments have been well deployed and fully discussed, but the specific arguments in favour of the Clause are related to four factors. First, the profits in the shipping industry are well known to fluctuate widely. This is not in any sense a direct consequence of management or policy in the shipping industry. It is a direct consequence of the fluctuation in gross revenues, which is something almost entirely beyond the industry's control.
1891 Secondly, the shipping industry has a limited ability to make profits, as experience of the last few years has demonstrated. It is heavily dependent upon investment and capital allowances, and this again has been fully discussed on earlier Amendments. I wish that I could display to the Committee a chart which would illustrate all this verbiage much more simply than I can. However, such visual aids do not as yet exist, but it would help to demonstrate the case if I had a type of modern projector which could throw on a screen behind you, Mr. Steele, a set of figures or a chart. Just as hon. Members on this side desire reform, so we seek to illuminate issues rather than facilitate the Executive. Thirdly, the shipping industry suffers from a low profit to turnover ratio and, therefore, depreciation absorbs a very high proportion of profits. Finally, there remains the fact that profits have been low.
The result, quite simply, is that since 1958 the industry has not been able to set off all its capital allowances due—I emphasise the word "due"—against the trading profits of the industry in the aggregate. It is not to say that some companies have not paid tax, as the Chief Secretary well knows, or that in the most favourable circumstances some companies will in the future still pay tax.
Therefore, the industry is asking for as rapid a write-off as possible, and a write-off provision to have three simple effects. First, to provide insurance against the risk—and it is a very real risk, as the Chief Secretary well knows—of carrying forward capital allowances over many years. Secondly, it would encourage shipowners to build, and this is something, presumably, which lies at the heart of the Government's stated and declared policy towards both the shipping and shipbuilding industries—a provision to ensure that no tax would be payable till the cost of the ship, with investment allowance, be it at 40 per cent. or whatever it might be, has been fully written off.
Thirdly, it would encourage owners to expand in highly competitive fields of shipping enterprise. The growth sectors of shipping are those where risks are low but where the rates are correspondingly fiercely competitive, bulk ore, bulk oil, and bulk chemicals. These are fields in 1892 which to some extent British shipping has been displaced, and if it has been displaced from those fields the reason is not to some extent that there has been more enterprise elsewhere, but that the desire to be enterprising has been so severely circumscribed by the general fiscal environment in which the British shipowner has had to operate.
The Government now have a chance to demonstrate not only their oft-proclaimed understanding of industry as a whole, an understanding which we on this side are alightly sceptical about, but their particular understanding of the special problems of maritime industry. The Financial Secretary, who, I am sorry to say, has left the Chamber, now has a chance to transform his lachrymosal wisdom into constructive purposes.
§ Mr. Simon Wingfield Digby (Dorset, West)This is the last of a series of efforts we have made to try to help the shipping industry because of the way it is bound to be hit by the Corporation Tax proposals. We are trying to do it by analogy with development districts, but I think it is a quite fair one. For our previous proposals to help the industry out of its difficulties we had a lot of sympathy from the Government, but the brutal truth is that we have received only one acceptance of an Amendment and one promise to look again, which really is not very much.
We have been met with various arguments. We were told that we would drive a coach and horses through the Corporation Tax, which would, of course, be the last thing we would try to do, and we were even met on one occasion with the extraordinary argument that the concession would cost not too much, but too little.
I have argued before, and I want to argue again, that there is a particular problem, to assist the special case, for the shipping industry is a special case for a trading nation and for an island nation like ourselves.
I must stress again that frequently in the past Parliament and various Governments have admitted this fact. For example, in 1951 we had the spokesman of a previous Labour Government admitting specifically the unique position and special importance of shipping, and subsequently, in the Budgets of 1956 and 1893 1957, Conservative Governments admitted the same principle.
I believe that time is beginning to run out. If the Government are unable to make concessions in this Bill, that is asking for another year of waiting, and in the meanwhile foreign competition is increasing against us. In addition, that competition is becoming increasingly unfair. If we are to look to the future of the shipping industry, I do not believe that we have an indefinite time at our disposal.
I am delighted that the Chancellor is present. I used to think of him as somebody who was specially interested in the shipping industry, on account of his association with the Admiralty, and I hope that it is not too late for him to put something into the Bill to deal with this matter.
I need hardly remind the Committee how important it is for the merchant fleet to be kept modern. In an era of intense competition, and unfair competition, nothing is more important than having the most modern and up-to-date type of shipping to operate. The purpose of the Clause is to bring that about by writing off the capital put into ships as quickly as possible and by modernising our fleet and putting us in a position to deal with that competition.
I know that on earlier new Clauses the Chief Secretary has tended to talk in terms of averages, but I think that it is a mistake to do that. The various sections of the industry—and they are quite distinct—and their different trades are affected in different ways by these taxation proposals, and they are affected by the competition to which I have referred in different ways.
On an earlier new Clause about investment allowances the Chief Secretary was particularly unsympathetic. He spoke about a £150 million carry forward from what I think he described as investment allowances. I have two comments to make on that. First, I am not sure where he got that figure from, and, secondly, I am sure he would agree that that was an aggregate figure and was not related to investment allowances only, but was for all capital allowances, and about half of it anyway related to wear and tear.
1894 If we take a figure of unabsorbed investment allowances of £75 million, it is only fair to compare that with a figure of no less than £400 million already used by the industry up to the end of 1963. When we remember, in addition, that the cost of replacing the whole of our merchant fleet as it exists today would be no less than £3,600 million, we realise that this figure of between £100 million and £150 million, and this talk about papering the walls with it, is not entirely relevant to the problems of the industry, and probably we can best account for it by the fact that the Chancellor said it at a late hour of the night when we were all getting a little tired.
I believe that one way in which we can help the industry in the Bill is by allowing a complete write-off of the ships in the good years. We have spoken about the cycles of the industry. We are going through a bad cycle at the moment, and we hope that the cycle of high profitability will come soon. If, when that comes, we can use it to write off ships quickly, and use it also to have not only a fleet of 20 million tons—the largest in the world—but also perhaps the most modern, I believe that we shall be able to meet this competition and this flag discrimination, and also meet the tendency of the emergent nations each to try to build up its merchant marine at whatever cost to itself.
I therefore hope that the Committee will accept the new Clause.
§ 10.45 p.m.
§ Mr. John Wells (Maidstone)I cannot help feeling very depressed at the fact that the Minister of State, Board of Trade, who has special responsibility for shipping matters, has only just come into the Chamber, and has not heard more of the debate, and, in particular, the speech of my hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd). Hon. Members on this side of the Committee appreciate the work which the hon. Member is seeking to do for the industry, but it has been a depressing experience to have seen accountants and Whips and not much else on the Government Front Bench throughout this debate.
The shipping industry has been woefully neglected by the party opposite. The proposed Clause will have a considerable effect not only on the major shipyards, 1895 but on much smaller boat builders. My hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) and my hon. Friend the Member for Langstone have been thinking of the larger shipbuilders—the people who are building ships of considerable tonnage. I would remind the Committee that these provisions will apply equally to the much smaller shipbuilders, building much smaller tonnages.
These people are increasing in number and are among the stars of our export market. It is impossible to be a star in the export market without the help of the home industry. It is, therefore, essential to the smaller as well as the larger firms that Clauses such as this should be agreed to. I hope that the Financial Secretary will look seriously at the needs of the smaller shipbuilders.
I also hope that the Government will give serious consideration to the needs of a healthy home market. It seems to me a very poor state of affairs that hon. Members on this side of the Committee should be in a majority throughout such a debate as this, and that the benches opposite should be half empty.
§ Mr. Stanley R. McMaster (Belfast, East)We have come at last to the last of this series of new Clauses on behalf of the Chamber of Shipping, designed to assist our shipping industry. We have discussed them at great length, and I do not wish to detain the Committee for long, but there are one or two points that I want to make. The Government have listened to the debates on this subject with care, and the hon. Member who has responsibility for shipping matters has usually endeavoured to be here to hear the discussions. The Ministers concerned and the Chief Secretary, together with the hon. Member in an earlier debate, have promised to give full consideration to the needs of this industry.
As recently as yesterday the Chancellor cited the Geddes Committee and other committees which are engaged on an examination of the shipping industry. I would like to see something a little more positive than these general promises. The Finance Bill is the major instrument of Government policy for a year, and if the Government do not take this opportunity of drafting a new proposal for the Report 1896 stage they will have missed a valuable opportunity and perhaps postponed for a vital year their chance to give effect to their promises to help the industry.
My constituency interests, which I have often declared, extend not only to shipping, but to shipbuilding, and by giving positive assistance to the industry we can assist our shipbuilders to operate in parts of the country where there are serious employment difficulties, including our own yards in Northern Ireland. I hope that the Chief Secretary will give a firm indication of Government policy on this issue.
I support what has been said by my. hon. Friends in support of the new Clause. Its purpose is to increase the investment allowances, as has been made clear. I believe that the Government have already accepted that the shipping industry is in a peculiar position in that its profits fluctuate dramatically from year to year, that it must even out its expenditure and profits in a way that no other industry must, taking the good with the bad, and that it can suffer several years of depression followed by several years of boom. Unless the industry is able to average these things over a number of years, it will be at a distinct disadvantage compared with foreign shipowners operating under other flags and more lenient tax arrangements.
The Clause takes these variations into account and seeks to help by increasing the investment allowances. It is felt by those who have studied the Bill that the proposals of the Government will have the effect of increasing the industry's Corporation Tax burden. Although I had an exchange on this issue with the Chief Secretary earlier, I believe that it is accepted that Corporation Tax at 35 per cent. or 40 per cent. might have the effect of increasing the amount of tax which is raised from companies and that this will be done at the expense of the investment allowances. The Clause would result in that increase being offset for shipowners.
It also takes into account the fact that shipowners, in planning their investment programmes, must, in such a capital intensive industry, pay particular attention—unlike some of the other industries which have been mentioned—to the level of the investment allowances. Decisions to build new ships can be vitally affected 1897 by a variation of 1 per cent. or 2 per cent. in those rates. We must also remember the long period—which also fluctuates—between the decision to order a new ship or replace a boat and the actual placing of the order, the construction of the vessel, the launching, the ship going into commission and the final payment.
A variation in the investment allowances might damage the financial strength of the shipping companies concerned. I suggest, therefore, that the Clause provides a practical way by which the Financial Secretary could give special consideration to the shipping industry; can take into account the periods of delay between building and completion, the large sums of money involved, often several millions of pounds, and the other difficulties which have been mentioned.
I hope that the Government will try to make it a little easier for the shipping companies to survive against the type of foreign competition which exists today.
§ The Chief Secretary to the Treasury (Mr. John Diamond)It is common ground in the Committee that there is, as the hon. Member for Dorset, West (Mr. Wingfield Digby) said, a special case for helping the shipping industry. That is the common ground from which we start. Where the differences of opinion lie is, perhaps, on the question of the best method by which the industry can be helped, particularly—since we are discussing the Finance Bill—whether certain provisions in the Measure provide the best way of helping. It is only on that point that there have been differences of view.
Because we have already debated the general background—not only of the shipping industry, but the whole question of capital allowances of one kind and another—I am sure that the Committee would not wish me to go at length into the matters of description again but to deal more particularly with the arguments which have been put forward.
I do not want it to go out from the Committee that we are discussing an industry which is not capable from time to time of achieving striking results. Although the profits of the shipping industry have had a dip for some time, nevertheless, as the hon. Member for Belfast, East (Mr. McMaster) reminded 1898 me, one of his constituents, Harland and Wolff, in very recent weeks has obtained an order for building the largest ship in the world. We take pleasure in that and congratulate the hon. Member and his famous constituents. We wish them luck and hope that it is a very successful and comfortably completed contract without any difficulties on the way.
§ Mr. McMasterI thank the Chief Secretary for that reference, but does he not consider it most unfortunate that while the Norwegians have placed this order, which shows that our costs are competitive, Shell has placed orders for three boats in Japan and Germany—
§ Mr. DiamondI gather your view is, Mr. Steele, that that is an entirely different matter.
The present situation, having regard to the existing system of allowances, is that a shipping company acquiring a new ship can write off 55 per cent. in the first year. That is a very substantial figure. The hon. Gentleman should not shake his head because this is a fact. If he was referring to something very different again, I apologise.
Fifty-five per cent. is a very large figure indeed for any owner of industry or service to be able to write off against the cost of his newly acquired asset in the first year. Most firms, for ordinary commercial purposes and for the purposes of preparing their balance sheet, think this too large a figure to carry. That is the present situation, but no doubt we shall be told that as we are introducing the Corporation Tax this will have an effect. Indeed it does have an effect. It has the effect of encouraging every company to plough back more, rather than to distribute dividends. It certainly does not devalue investment allowances—that is a completely erroneous and fallacious conception. This does not happen at all, and it is demonstrated in the shipping industry. Capital allowances are equal to profits or greater, and therefore one gets no tax payable. It would not matter whether the allowances were greater because there still would be no tax payable. An investment allowance is in fact a tax deduction and not a subsidy. That is the present situation.
1899 Corporation Tax, however, has the effect on the shipping and other industries, of preventing a company from continuing the anomaly which has been referred to in critical terms by the Public Accounts Committee of paying dividends allegedly after deduction of tax and enabling the recipients to reclaim from the Revenue tax which has never been paid.
It is in that respect and in that respect only that the Corporation Tax will affect the shipping industry. Representations are made to us to alleviate the situation. Much as we are anxious to help the shipping industry, we are not prepared so to alter the provisions of the Corporation Tax as to enable companies in future to continue this practice which Parliament criticised in the way I have indicated.
The question arises how we can help the shipping industry. Hon. Members speaking to this Clause have said that this could be done by giving free depreciation as is given in the development districts. In the development districts, free depreciation does not apply where one has mobile equipment, and will therefore not apply to any shipping firm in a development district. Hon. Members are therefore seeking to say, "Let us have free depreciation on ships as if they were immobile and in a development district".
It is an interesting suggestion, and I have many times in previous debates referred from the other side of the Chamber to the possibility of using free depreciation as an encouragement to industry. So I am not ill-disposed to the idea of free depreciation, but quite the contrary. I am well disposed towards the industry, I want to help it, but free depreciation will not help it at all.
The shipping industry has already accumulated, as we all agree, a very large figure of capital allowances of one kind and another—in excess of £150 million already. Free depreciation is of benefit to the taxpayer only when he is in a situation in which he would otherwise be paying tax immediately, and wants to write off the whole of his depreciation at once so as to avoid the tax immediately. The industry is supremely the case in which that does not apply. All the arguments have been based on the fact that the industry is going through 1900 a difficult period and must look ahead. To give the industry free depreciation would merely result in enabling certain companies to increase these unused credits they already possess to place against tax liability when they are not rendering themselves liable to pay tax—
§ 11.0 p.m.
§ Mr. Wingfield DigbyBut surely the right hon. Gentleman would admit that prosperous times may be ahead and is not saying that the cycle will not change.
§ Mr. DiamondI very much hope that the cycle is already upon us and that we are already going uphill so fast that we can hardly keep on the graph paper. I hope so, but what I am demonstrating to the hon. Gentleman is that although he is anxious to help the industry, he is not doing so. He himself is asking: "What about the future?" I repeat that free depreciation is a method for helping now, not in the future. It is of no help to an industry that can only make use of it in the future. Free depreciation gives to a taxpayer the alternative of charging the whole depreciation now; that means not charging anything in future years.
I therefore hope that I have made it clear to the hon. Gentleman that our sympathy with the shipping industry and our desire to help it means that we do not want to fob it off with an arrangement, albeit put forward with great sincerity by hon. Members opposite, which will really not give it any more help at all, but will merely give the firms concerned further credit notes with which to paper the walls of their offices. That is of no real help to the industry.
The hon. Gentleman may say, "The Chief Secretary has made many speeches on this subject"—that is perfectly true—"What are he and the Government doing to help the industry?" My first answer is that I am not deceiving the industry into thinking that this is a method of helping it. My second answer is—and I hope I am not deceiving the industry—that during the course of the week there will take place the fifth Ministerial meeting with representatives of the industry at which my right hon. Friend and other Ministers are attending.
Four such meetings have already taken place. It would not be proper in any sense at all to indicate the nature of the 1901 discussions, but they are going on with a view to covering the ground and seeing in what ways we can help an industry which we are all anxious to help and which is vital to the welfare of the country for our invisible exports, and for a number of other reasons. I therefore suggest that although the Clause has been put forward with great sincerity, it is of no help to the shipping industry we all desire to assist.
§ Mr. William Clark (Nottingham, South)I am sure we are all grateful to my hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) for having introduced this Clause, and nobody would deny him his interest in the shipping industry. As my hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) has said, the Chancellor's own connection with the Admiralty precludes him from denying its importance, and for my part I should have thought that his connection with Brixham would also have prevented his denying its great value to the nation.
Yet, the fact is that the industry has had a period of low profit and all my hon. Friends are trying to do is to give it the same benefits as are at present available to the development districts under free depreciation. The Government, or the other hand, just continues to pay lip-service to the needs of this industry, and my hon. Friend the Member for Belfast. East (Mr. McMaster) brought this out very well. The Chief Secretary merely entertained the Committee to a repetition of debates we have already had on Corporation Tax.
What has the Government done? I do not intend at this hour to reiterate all the facts about overseas competition in the shipping industry, and, as my hon. Friends have so well demonstrated, it does face very severe competition from flag discrimination and the subsidies which many countries offer and which the Minister with special responsibilities for shipping must know about. A basic point of our Clause is what it would cost the Government; and, in the long run, the answer is precisely nothing. It would cost nothing if this Clause were conceded. The Chief Secretary knows that if one really accelerated the allowances due on a ship or other piece of equipment, all that would happen would be that, instead of getting the amount 1902 written off in four or five years, it would be written off in the first year.
That is a fact, yet the Chief Secretary continually comes back to this question of the £150 million of unused allowances in the industry. If this is the position, and British shipping companies have a proportion of this amount, then giving us this new Clause would mean there was no cost to the Exchequer at all. It would merely add to the £150 million, although this is presupposing that all shipping companies have allowances carried forward. But this is not the case, as the Chief Secretary must know. It is no use at all his generalising by way of saying that over the whole sphere of this industry there is £150 million of unused credit and so there is no company which could benefit from an accelerated free depreciation allowance.
Furthermore, there is no question of tax avoidance here because, if there is free depreciation allowance, there is also the balancing charge so that the Exchequer recoups the difference between the allowances given and the sale price of the ship. That being so, I cannot understand what is the Chief Secretary's objection. I am glad to see that the Chancellor has now returned. [Interruption.] I have already paid tribute to his interest in the shipping industry.
The real nub of this matter is that we are sincerely convinced by the fact that the Corporation Tax is going to hit, not only the shipping industry, but many other industrial activities in this country; and that is the real difference between the two sides of the Committee. We have had many arguments on short fall, overstalling, and the rest, and I do not intend to canvass again all those debates but to deplore the fact that while the Government continues to pay lip-service to industry they also continue to say, "We want to help industry". In no case have the Government given the help of which they speak.
Here, I am afraid, we have another case of the Government saying one thing and doing another. Here is yet again a case of the Government saying, "Yes, we want to help", while doing nothing at all really to help. In fact, the absolute reverse is the case. We on this side of the Committee thought the Chief Secretary's reply extremely disappointing, 1903 extremely repetitive and extremely unsatisfactory.
§ Question put and negatived.
§ Mr. DiamondI beg to move,
That the Chairman do report Progress and ask leave to sit again.We have reached a stage when the Opposition benches are extremely empty and hon. Members opposite are looking extremely tired. They obviously need rest and recuperation. It would be unfair to press any matter to a Division as we have exactly twice as many hon. Members in the Chamber on the Government side as there are on the Opposition side.
§ Notice taken that 40 Members were not present;
§ Committee counted, and, 40 Members being present—
§ 11.12 p.m.
§ Mr. DiamondIt would be welcomed on both sides of the Committee in all the circumstances that we should discontinue the debate now. Another day has been allowed for debate tomorrow. We can deal with the rest of the new Clauses and the Schedules and have time for the remaining business put down for tomorrow.
§ Mr. HeathTo those of us who have sat here during these lengthy debates it is becoming somewhat noticeable that the Government benches become thronged only from 11 o'clock onwards when members of the Government come in too anxious that the Motion to report Progress should be moved so that they can flee to their beds. They having found themselves after two days of concentrated debate unable to stand the strain and the Leader of the House having announced this afternoon that there was to be an additional day on the new Clauses, the Chief Secretary has promptly moved to report Progress.
We have today covered more than half the new Clauses and it ought to be possible tomorrow to complete consideration of the remainder, but there is one consideration. We have had to listen to a series of pontifications from the Treasury Bench and in between some of my hon. Friends have been able to get in a word or two. So powerful and persuasive have they been that we have achieved the great success of persuading the Govern- 1904 ment to accept a new Clause which will be a great benefit to the blind. This has been well worth while and justifies the efforts we have made to secure this arrangement. Therefore I think the Committee can feel that we have made further progress and tomorrow we should be able to dispense with the rest of the new Clauses and the remainder of the Schedules.
§ Question put and agreed to.
§ Committee report Progress; to sit again Tomorrow.